Company’s Performance Assessment

Introduction

Assessing a company’s performance is a critical process for determining its strengths and weaknesses, market position, and capacity to deliver customer value. Based on the assessment results, effective strategies can be developed to drive future growth. Several assessment tools are available for evaluating performance and competitive viability. These methodologies evaluate different metrics and internal capabilities and resources. This paper identifies and examines the usage, merits, and demerits of four company assessment tools, namely, the expanded 7-S framework, balanced scorecard, SWOT, and PESTLE.

Identification and Usage of the Tools

Expanded 7-S Framework

This model is useful for developing a better organizational flow. Developed in 1982, the McKinsey 7s framework comprises seven interdependent elements essential for effective strategic alignment: “shared values, staff, structure, strategy, systems, skills, and style” (Cox, Pinfield and Rutter, 2019, p. 315). This model is particularly useful for designing a dynamic organization successfully. Hard elements comprise tangible, procedural, and systematic aspects such as structure, strategy, and system (Cox, Pinfield and Rutter, 2019). On the other hand, soft aspects include skills and values that are intangible factors under a cultural influence.

The expanded 7-S framework is applied to identify a strategy that fits the organization’s environment. Subsequently, structures and systems have to be developed and shared values and leadership styles aligned with organizational culture. Lastly, the right number of staff and skillsets are engaged for the company to develop (Cox, Pinfield and Rutter 2019). For a long time, managers prioritized and improved hard aspects alone in strategy development. However, soft factors, including skills (competencies and culture) and common values (emotional and behavioral components), are equally important to the firm (Beer et al., 2005). The 7-S model considers questions about strategy, organizational structure, internal systems and controls, core values, leadership style, staff capabilities, and skill requirements.

Balanced Scorecard

The Balanced Scorecard Model (BSM) comprises specific metrics drawn from organizational strategy. These measures constitute a useful tool for communicating key growth drivers internally and externally (Sachs, 2020). As a strategic management tool, the BSM helps align a firm with its strategic mission and objectives. It is also a useful framework for monitoring company performance. The BSM comprises four perspectives aligned with organizational vision and strategy: financial aspect, customer, learning and growth, and internal business processes (Sachs, 2020). The objectives, measures, targets, and initiatives are defined for each of these factors.

Company assessment using BSM involves collecting and analyzing data for each perspective. The learning and growth aspect evaluates how a company will continue to innovate and respond to change (Sachs, 2020). Its goals include technology leadership, product focus, and learning production efficiency. Examples of key metrics for assessing this perspective are process time and new product launches compared to the competitors. The internal business perspective looks at processes that a company must prioritize to satisfy stakeholders.

The financial perspective focuses on how to improve the bottom line through strategy. Key financial goals relate to business growth and profits, whereas typical metrics include cash flow, quarterly sales, and market share (Sachs, 2020). The customer perspective emphasizes factors that deliver value to consumers, including supply chain relationships, new products, and efficient distribution. On-time delivery and sales are typical metrics for assessing this perspective.

SWOT

SWOT is a structured tool for assessing the prospects of a project or a firm. It identifies and analyzes the internal strengths and weaknesses of an organization and the opportunities and threats in its external environment (Akman, 2019). SWOT identifies factors that will promote performance and barriers derailing strategy. Thus, it is a useful tool for decision-making and understanding the prospects and risks of an organization. A SWOT analysis entails identifying and classifying internal and external factors affecting the organization.

Internally, an organization’s performance is affected by its strengths and weaknesses. The existence or lack of unique, valued assets and talents within a company determines its competitive power. An organization’s ability to accomplish its strategic objectives is determined by its financial resources, workforce, expertise, patents, and technology (Benzaghta et al., 2021). While weaknesses are obstacles to overcome, strengths are a company’s inherent potential. The external environment consists of both threats and opportunities, which present obstacles and possibilities for growth, accordingly.

PESTLE

The external environment of a firm includes key threats and opportunities for growth. PESTLE analysis is a valuable tool for assessing the six environmental factors relevant to an organization’s industry. Political considerations important to a firm include government economic policies and interventions that impact business (CIPD, 2021). Bureaucratic processes, tariffs, and tax regimes put in place to boost the economy are a few examples. Elections create uncertainty for businesses because of different economic policies proposed by candidates.

The second set of factors in the PESTLE framework are economic aspects. They impact growth prospects in different sectors of the economy. The economic indicators and measures taken by the Federal Reserve and government departments affect businesses. Factors such as economic growth projections, interest rates, inflation, and unemployment levels influence corporate-level decisions and strategies (CIPD, 2021). For instance, a firm may choose debt refinancing following interest rates reduction by the government.

PESTLE also considers social factors that influence consumption habits, attitudes, and preferences. They include cultural aspects, demographic trends, customs, and rules that shape consumer behavior (CIPD, 2021). Companies must analyze social factors relevant to a new market before entry. Among the key aspects to consider are cultural perceptions, health consciousness of the population, rate of population growth, and age distribution. Analysis of social factors is useful for identifying market segments for specific products.

Important technological factors are also analyzed using the PESTLE framework. The assessment focuses on drivers of innovation or the latest trends in an industry. Among the technological factors measured include R&D activity, process automation, and availability of incentives to use technology (CIPD, 2021). PESTLE analysis also considers legal forces that define legitimate business activities at the state and federal levels. Corporate governance, production standards, and contract and alliance processes are all governed by laws and policies. Adherence to industry norms and regulations will prevent legal action and sanctions that impact operations and output.

Lastly, PESTLE analyzes environmental factors impacting the business and its supply chain. Extreme weather events have increased the need for agile practices and preparedness for unforeseen changes (CIPD, 2021). Weather patterns, temperature, climate change, and disasters impact business performance negatively. In addition, organizations are under pressure from consumers to adopt environmentally friendly practices in their production and engage in corporate social responsibility.

Merits and Demerits

Expanded 7-S Framework

This model ensured a shared vision among leaders and staff. The framework is more effective than classical methods that consider hard elements only. The 7-S framework analyzes soft factors such as skills and shared values that are equally critical to the business (Beer et al., 2005). Another advantage of the model is that its structures and systems support the systematic implementation of policies and strategic decisions developed by executive management. However, the model is critiqued for stressing internal factors while disregarding external forces that also impact organizations (Park, Yoo and Lee, 2021). Another demerit of the 7-S framework is that it lacks clear steps for managing change or transitions.

Balanced Scorecard

A major strength of BSM is that it gives a balanced view of business performance. Compared to traditional approaches that focus on the financial dimension alone, the balanced scorecard comprehensively considers all aspects of a firm’s overall performance (Ratnaningrum, Aryani and Setiawan, 2020). The BSM also supports organizational development in line with identified strategic goals. Staff can be trained and educated on areas determined as poorly performing by the balanced scorecard. Another merit of this tool relates to its flexibility; it can be adjusted to reflect changes in strategic objectives and the business environment (Sachs, 2020). BSM is an important planning tool, especially in resource allocation and budgeting, to achieve targeted outcomes. One demerit of the balanced scorecard is that its metrics do not apply to all organization types, and thus it is not beneficial to some businesses. It is also criticized for giving a limited view of performance, as the financial metrics are limited in scope.

SWOT

SWOT is a strong tool for developing and selecting an effective strategy. Its main advantage is that it scans the overall business environment (both internal and external aspects), making it a useful tool for strategic planning (Benzaghta et al., 2021). In this regard, it provides rich information for pioneers to take advantage of new opportunities before rival companies do. SWOT analysis also allows firms to build on their strengths and reverse weaknesses. In addition, the core competencies of a firm are identified using this tool. Its main limitation is that it is a very subjective framework. Thus, the effects of aspects not under the control of the business, such as government legislation and raw materials, are underestimated (Akman, 2019). Internally, the firm may lack adequate R&D capabilities and skills and fail to notice key opportunities and threats.

PESTLE Analysis

PESTLE is a simple tool to use for strategic analysis. Another advantage is that it is very comprehensive, facilitating an in-depth analysis of the broader business environment (CIPD, 2021). PESTLE also promotes strategic thinking that considers external factors. As a result, a business can anticipate and respond to threats adequately or exploit new opportunities. However, PESTLE has some fundamental limitations that limit its effectiveness as a strategic tool. It oversimplifies the volumes of information needed for each factor, the data used may not be accurate, and it needs to be repeated frequently to capture new changes.

Conclusion

Effective assessment of a company’s performance and strategy requires a combination of tools. The available frameworks differ in the type of metrics assessed, scope, and relevance to the industry. The expanded 7-S framework considers the soft factors often neglected by other models. The balanced scorecard gives a comprehensive view of company performance, while SWOT provides useful information about the external environment. PESTLE analysis gives an even more detailed understanding of macro-environment forces than SWOT.

Reference List

Akman, M. K. (2019) ‘SWOT analysis and security management,’ European Journal of Management and Marketing Studies, 4(2), pp. 78-89.

Beer, M. et al. (2005) ‘Strategic management as organizational learning: developing fit and alignment through a disciplined process,’ Long Range Planning, 38, pp. 445-465.

Benzaghta, M. A. et al. (2021) ‘SWOT analysis applications: an integrative literature review,’ Journal of Global Business Insights, vol. 6, no. 1, pp. 55-73.

CIPD. (2021) Pestle analysis. Web.

Cox, A. M., Pinfield, S., and Rutter, S. (2019) ‘Extending McKinsey’s 7S model to understand strategic alignment in academic libraries’, Library Management, 40(5), pp. 313-326.

Park, H., Yoo, Y. and Lee, H. (2021) ‘7S model for technology protection of organizations’, Sustainability, 13(13), pp. 1-25.

Ratnaningrum, V., Aryani, A. and Setiawan, D. (2020) ‘Balanced scorecard: is it beneficial enough? A literature review’, Asian Journal of Accounting Perspective, 13(1), pp. 65-84.

Sachs, H. (2020) The importance of the balanced scorecard for creating business objectives and evaluating business strategies and the advantages and disadvantages of companies leveraging the French strategic management system or the balanced scorecard. London: Independent Publisher.